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Monday, May 17, 2010

Current Account Transactions – Further Liberalisation

In terms of (Rule 4) of the Foreign Exchange Management (Current Account Transactions) Rules 2000, prior approval of the Ministry of Commerce and Industry, Government of India, is required for drawing foreign exchange for remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump-sum payment exceeds USD 2 million [item 8 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000].The Government of India reviewed the extant policy with regard to liberalization of foreign technology agreement and decided to omit item number 8. It was decided to permit, with immediate effect, payments for royalty, lump sum fee for transfer of technology and payments for use of trademark/brand name on the automatic route without the approval of Ministry of Commerce and Industry, Government of India. These new rules will be called the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2010, and shall be deemed to have come into force with effect from the 16th of December, 2009. The Ministry of Commerce and Industry (Government of India) issued a press release on 17 December, 2009 stating that it has removed certain requirements to obtain prior government approval for the transfer of technology into India with immediate effect.

Under the earlier policy, government approvals were required for foreign technology transfers into India involving lump-sum payments of over US$2 million, and payments of royalty of over 5% on domestic sales and 8% on exports. Even if no technology transfer was involved and the foreign collaboration was limited to licensing of trade marks, prior government approvals were required if the royalty payments were over the prescribed limits of up to 2% for exports and 1% for domestic sales. In December 2009 a new policy removed any such restrictions, however, all such payments were subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 (FEMA Rules), which has now been amended further easing foreign collaborations in the field of technology.

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